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BMI View: We maintain our downbeat outlook for Venezuela's oil and gas sector
despite vast belowground potential and ambitious production plans by state-owned
PdVSA. We expect Venezuela to underperform, given the large scope of
above-ground challenges, including excessive political interference, chronic
underinvestment, an unattractive operating environment and the precarious
financial situation of PdVSA. Moreover, sustained weakness in global oil prices
will deteriorate production growth prospects as PdVSA and international
investors face declining revenues and a reduction in available capex funds.
Latest Updates and Key Forecasts
-We maintain our downbeat crude production forecast for 2016 this quarter to a
contraction of 5.4% y-oy amid sustained weakness in crude oil markets. This will
negatively impact available investment in Venezuela's upstream sector as the
government contends with its sizeable public sector spending plans.
-Crude production declines accelerated over H116, with OPEC data showing
production falling to 2.37mn b/d in May, a 14.4% decline over the past year.
Secondary sources report that output fell to 2.19mn b/d, the first time
production fell below 2.2mn b/d in over 20 years.
-President Nicolas Maduro announced an increase in the country's subsidised fuel
prices for the first time in two decades on February 17, with prices taking
effect on the 19th. Heavily discounted fuel has long been a key tenant of the
ruling Partido Socialista Unido de Venezuela (PSUV) party, many of whose members
believe near free fuel to be an innate right of the Venezuelan people. This
historic reform underscores the extent to which government debt has become
unsustainable under the existing fiscal regime as oil prices remain at historic